Selection of a Contractor for Repairs: Considering the Carrier’s Preferred Provider

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If your residence is damaged in a severe storm or by a burst pipe, you probably will look to your homeowner’s insurance to provide financial protection against loss. Selection of a contractor or remediation company is an important part of the insurance claims process. Although there may be no policy restriction on policyholders’ choice of company to repair or rebuild their home, the insurance company will often push an insured to work with one of the carrier’s preferred vendors.

When work is performed by a construction professional or contractor following a loss, the repairs can be substandard just as with any other time that people retain an individual to do work on their residence. Insurers often will have a “preferred” provider program that policyholders are encouraged to use. Although the carrier might offer a “guarantee” on the work as an incentive to use the designated provider, policyholders should be aware that such assurances might not be reliable. Insurance companies frequently have agreements with repair companies with rates that are pre-negotiated. This means that the individual or company doing the remediation work might have an incentive to cut costs when doing the work to obtain ongoing business from the insurance company.

While policyholders might assume that the so-called “guarantee” from the insurer makes such concerns unnecessary, a recent case demonstrates the limitations of such assurances. Although the recent California appellate court case of Rattan v. United Services Automobile Association is not controlling authority in Florida, it provides an insightful analysis of why a “guarantee” from the carrier is not the only factor policyholders should weigh when retaining a company to restore their home after a loss.

The insurance company pointed the policyholder in the direction of its “preferred” contracting company. However, the insured was disappointed because the repairs were inadequate in a number of ways that included:

Failing to re-install baseboards

Allowing employees to reside in the home while doing the work

Using the insured’s telephone

Leaving an odor of smoke in the home

Hiding a stud that was burned rather than replacing it

Electing not to report for work on multiple occasions

After the insured complained, the insurance company sent another contractor to fix the issues. However, the insured was still dissatisfied with the quality of the repairs following work by the second contractor, so a lawsuit seeking tort damages was filed seeking extra-contractual damages based on the substandard mitigation efforts. When the insured relied on the “guarantee” of the work provided by the carrier, the court reasoned that this representation was not a contractual guarantee or part of the policy. According to the court, evidence would need to be presented that the carrier took on additional responsibility for its preferred contractor that went beyond acting as a guarantor of the quality of the workmanship.

The point to take from this analysis is that using a “preferred” remediation individual or company will provide some benefits but no guarantee against certain types of loss from poor work. An insured can best protect his or her interest by checking out the contractor or remediation company whether the selection will be a “preferred” provider or another company. This investigation can include but is not limited to the following: reviewing the company’s website, checking with the state contractor licensing board, talking to friends about companies they have used, and getting references from a company’s past customers.

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